AEI » Latest Contenthttp://www.aei.org American Enterprise Institute: Freedom, Opportunity, EnterpriseSat, 01 Aug 2015 17:38:07 +0000en-UShourly1Matching all students to postsecondary opportunities: How college choice is influenced by institutional, state, and federal policyhttp://www.aei.org/events/matching-all-students-to-postsecondary-opportunities-how-college-choice-is-influenced-by-institutional-state-and-federal-policy/ http://www.aei.org/events/matching-all-students-to-postsecondary-opportunities-how-college-choice-is-influenced-by-institutional-state-and-federal-policy/#commentsTue, 21 Jul 2015 17:30:41 +0000http://www.aei.org/?post_type=event&p=850703College enrollment has increased, but graduation rates remain discouragingly mediocre, especially among low-income students. Consequently, researchers and policymakers have focused on how students choose colleges that maximize their potential success, especially regarding “undermatching” — when high-achieving, low-income students enroll in colleges that are less selective than they are qualified to attend.

The focus on academic match has started an important conversation about college choice for all students. What does it mean for a student to choose the best postsecondary option? How might the supply of college seats and financial aid influence academic match? Which policies support or impede students as they explore postsecondary options?

Please join us as AEI’s Andrew P. Kelly, College Board’s Jessica Howell, and Seton Hall University’s Carolyn Sattin-Bajaj host a major research conference exploring these questions, featuring eight new studies and analyses by experts in the field.

This event will be livestreamed only.

]]>http://www.aei.org/events/matching-all-students-to-postsecondary-opportunities-how-college-choice-is-influenced-by-institutional-state-and-federal-policy/feed/05 questions every presidential candidate should answer: ISIS editionhttp://www.aei.org/publication/5-questions-every-presidential-candidate-should-answer-isis-edition/ http://www.aei.org/publication/5-questions-every-presidential-candidate-should-answer-isis-edition/#commentsFri, 31 Jul 2015 19:33:29 +0000http://www.aei.org/?post_type=publication&p=852438While the roots of the Islamic State of Iraq and the Levant (ISIL, ISIS, Daesh) may predate the Iraq War, it was its rapid conquest of Mosul, Tikrit and other Sunni Arab-populated areas in Iraq that brought it to the forefront of the policy debate. At first, the White House dismissed ISIS as “the jayvee team.” As, however, the group consolidated control, forced the Christian community to flee their homes, enslaved Yezidis, declared a caliphate and threatened both Baghdad and Erbil, US policymakers refined their policy. On September 10, 2014, President Obama announced a new strategy “to degrade and ultimately destroy” the Islamic State. Nearly a year later, however, ISIS remains in control of large swaths of both Iraq and Syria, and will probably continue to control significant territory into the next administration. How candidates answer the following questions should elucidate how they understand the Islamic State, the threat it poses, and what strategy the United States should pursue:

An Iraqi helicopter flies over a soldier in Husaybah, in Anbar province July 22, 2015. Iraqi security forces and Sunni tribal fighters launched an offensive on Tuesday to dislodge Islamic State militants and secure a supply route in Anbar province, police and tribal sources said. Reuters

Who was responsible for the rise of the Islamic State?

Foreign fighters might have flocked to Iraq and Syria, but were they alone responsible for the rapid rise of the Islamic State inside Iraq? Would the Islamic State have taken hold had the United States not precipitously withdrawn from Iraq? At the same time, could the Islamic State have succeeded in seizing Mosul, Tikrit, and other territories without the buy-in of some Sunni tribesmen, Baathists, and veterans of the Saddam-era Iraqi army? Subject to debate, however, is this: whether Prime Minister Nouri al-Maliki’s sometimes sectarian policies precipitated the Sunni Arab Iraqis’ rejection of Baghdad, or whether ideological refusal to accept the empowerment of Shi‘ites preordained Sunni cooperation with the Islamic State. The question of motivation is important. To believe political grievances to be responsible for the rise of the Islamic State implies that the resolution of those grievances, for example with a more magnanimous policy in Baghdad, would undercut Sunni support for the Islamic State. However, it would not explain the rise of the Islamic State in an exclusively Sunni country like Libya, nor the resonance that Abu Bakr al-Baghdadi’s call for a caliphate has had with foreign fighters from more than 90 countries. Regardless, should Baghdad make concessions to Sunnis under fire?

Likewise, while sectarianism is an issue, is the root of sectarian discord Shi‘ite discrimination against Sunnis, or rather Sunni rejection of Shi‘ite political power? Who, for example, has been responsible for dozen of car bombings in Baghdad, both before and after the rise of the Islamic State? Could cooperation between senior Baathists and the Islamic State suggest that Iraqi Shi‘ite leaders were right all along that re-integrating Baathists into the government would pose a security risk? The Sunni tribes might not have been alone in having enabled the rise of the Islamic State. The Kurdistan Regional Government (KRG) may have provided some weaponry to the Islamic State, in order to use them as a means to weaken the Maliki government (with whom the KRG was locked in contentious negotiations.) This raises a broader question about whether the KRG is committed to defeating the Islamic State entirely, or merely driving it out of territory the Kurds hold or seek. The answer to this impacts the nature of US aid and assistance.

Should the United States directly arm the Kurds and the Sunni tribes?

After the Iraqi Army withdraw from Fallujah in the face of a withering Islamic State assault, Secretary of Defense Ashton Carter suggested the problem was that the Iraqi army lacked the “will to fight.” That may not have been accurate, but critics are right to point out that, after the United States spent upwards of $20 billion training a new Iraqi army, many of its top officers not only initially fled the advance of the Islamic State but they also abandoned their equipment to it. Against the backdrop of the Iraqi Army’s failures, the rise of the often sectarian Hashd al-Shaabi (Popular Mobilization Forces), and the accusations (often false) that the Iraqi government has prevented supply of weaponry to the Kurds, many analysts and US politicians argue that the United States should directly arm Sunni tribes and the Kurdish Peshmerga.

So, would you supply weaponry directly to the Sunni tribes and Peshmerga? How would you ensure that Sunni tribes and Kurdish political parties actually use the weaponry for its intended purpose? After all, the Kurdistan Regional Government has largely stockpiled the weaponry it has received for political reasons, the reason why many Sunni tribes have defected to the Islamic State. What would this mean for Iraqi unity? And what impact would such a strategy have on the willingness of the Iraqi central government to work with the United States? Otherwise put, might direct provision of weaponry to Sunni tribes actually exacerbate sectarianism by giving pro-Iranian factions in Baghdad a populist advantage? Just as important, what strategies would you suggest for decommissioning the newly-armed tribal and Kurdish units (or Shi‘ite volunteers) after fighting ends?

Is Iran a partner?

Increasingly, U.S. airpower seems to support with Iranian-backed militias fighting the Islamic State. While the defeat of the Islamic State might be a noble goal, is it wise to coordinate with Iranian-backed militias as opposed to the more centralized Iraqi army? While the United States and Iran might share the goal of the Islamic State’s defeat, at what point do their interests and vision divergefor a post-Islamic State order in Iraq? What are the disadvantages of working with Iran in Iraq?

Will ground troops be necessary to defeat the Islamic State?

Air power has been central to President Obama’s strategy to defeating the Islamic State, but it has failed to achieve its goals. While the Islamic State has suffered some setbacks, the territory under its control is now larger than when the president announced the beginning of an air campaign. Will US ground troops be necessary to defeat the Islamic State? If so, how many and what types of ground forces should return to Iraq, and what should their mission be? Should an Authorization for the Use of Military Force in Iraq be written narrowly to prevent mission creep, or should it provide American forces re-inserted in Iraq with expansive powers?

Can the United States live with the Islamic State?

This may sound like a ridiculous question , but in many ways it represents the elephant in the room. So, under your administration, would you seek to eradicate the Islamic State in its entirety and, if so, under what time frame? Or would you be satisfied with containing the Islamic State? Would your goal be to eradicate the Islamic State in Iraq only, or would any comprehensive strategy also have to address the safe-haven the Islamic State has found in Syria? In other words, is victory in Iraq possible without also addressing the chaos emanating from within Syria?

]]>http://www.aei.org/publication/5-questions-every-presidential-candidate-should-answer-isis-edition/feed/1Lessons for Social Security reform from Canada: Part 2http://www.aei.org/publication/lessons-for-social-security-reform-from-canada-part-2/ http://www.aei.org/publication/lessons-for-social-security-reform-from-canada-part-2/#commentsFri, 31 Jul 2015 18:46:36 +0000http://www.aei.org/?post_type=publication&p=852440Canadian parents save less for retirement than Canadians without kids. And it’s probably deliberate.

In my previous column, I focused on a new study from Canada’s Fraser Institute, which found that when taxes were increased to help fund the Canada Pension Plan (CPP), Canadian households reduced their own personal saving on a nearly dollar-for-dollar basis. That result implies that expanding Social Security, or simply even raising taxes to keep it solvent, might reduce the non-Social Security savings that Americans put aside to help support themselves in retirement. If so, expanding Social Security won’t necessarily mean expanding retirement incomes.

But the Fraser Institute paper, authored by Charles Lammam, François Vaillancourt, Ian Herzog and Pouya Ebrahimi, shows something else interesting, with regard to gauging Americans’ overall readiness for retirement: how households with children save for retirement compared to households without kids.

As I recently argued, the broad goal of retirement saving is to allow a person to enjoy the same standard of living in retirement as they had during their working years. In this context, parents should save less for retirement than non-parents, because part of parents’ pre-retirement incomes goes toward supporting their kids. In other words, you don’t need to replace a standard of living that you never had.

I pointed to research from two University of Wisconsin economists showing that a household with two kids will hold about 10% less wealth than a similar household without kids, and other research from the RAND Corporation’s Suzanne Rohwedder showing that in retirement, people who’d had kids report being just as financially secure as retirees who didn’t have kids. Together, these results indicate that parents may be rationally saving less than non-parents. Studies that don’t account for how children affect retirement saving will find parents to be disproportionately under-prepared for retirement and help foster the perception of a “retirement crisis.”

The Fraser paper adds to that argument. In analyzing how Canadian households’ personal saving reacts to changes in pension tax rates, the authors had to control for a number of factors – including whether the household had children. The Fraser study finds that, all other things equal, for each child a household’s saving rate drops by about 3.5 percentage points. That’s a pretty big difference, but if parents saving for retirement are seeking only to replace their own pre-retirement consumption, not the income that was consumed by their children, it’s a difference that doesn’t matter very much.

Again, this hints at the possibility is that many of the Americans who we believe are causing a retirement crisis through their inadequate saving are doing precisely what they should do and will end up satisfied with the results. If so, a massive overhaul of the U.S. retirement system, such as by expanding Social Security or setting up government-run retirement plans, isn’t what we need. Instead, policymakers should focus on targeted policies for the groups that truly do seem to be underprepared for retirement – such as single, less-educated women. I’ll talk more about what we can do for such groups in a future piece.

]]>http://www.aei.org/publication/lessons-for-social-security-reform-from-canada-part-2/feed/0Middle-class incomes haven’t been flat for 30 years. In fact, here’s why they may have doubledhttp://www.aei.org/publication/middle-class-incomes-havent-been-flat-for-30-years-in-fact-heres-why-they-may-have-doubled/ http://www.aei.org/publication/middle-class-incomes-havent-been-flat-for-30-years-in-fact-heres-why-they-may-have-doubled/#commentsFri, 31 Jul 2015 18:29:18 +0000http://www.aei.org/?post_type=publication&p=852435When economists — and the Obama White House — talk about middle-class income stagnation, they are often referring to Census Bureau data showing median household income — adjusted for inflation — rose less than 10% from 1984 through 2013, just less than 0.3% per year. That stinks.

But those statistics just don’t pass the smell test. Anyone over the age of 35 or so knows Americans are substantially better off than they were 30 years ago. Economist (and former head of the National Bureau of Economic Research) Martin Feldstein helpfully digs into the data:

The official Census estimate suffers from three important problems. For starters, it fails to recognize the changing composition of the population; the household of today is quite different from the household of 30 years ago. Moreover, the Census Bureau’s estimate of income is too narrow, given that middle-income families have received increasing government transfers while benefiting from lower income-tax rates. Finally, the price index used by the Census Bureau fails to capture the important contributions of new products and product improvements to Americans’ standard of living. … With the traditional definition of money income, the CBO found that real median household income rose by just 15% from 1980 to 2010, similar to the Census Bureau’s estimate. But when they expanded the definition of income to include benefits and subtracted taxes, they found that the median household’s real income rose by 45%. Adjusting for household size boosted this gain to 53%.

So 53% is a lot more than 10%. But even that number may underestimate the rise in American buying power due to how we measure inflation:

The authorities arrive at their estimates by converting dollar incomes into a measure of real income by using a price index that reflects the changes in the prices of existing goods and services. But that price index does not reflect new products or improvements to existing goods and services. Thus, if everyone’s money incomes rose by 2% from one year to the next, while the prices of all goods and services also rose by 2%, the official calculation would show no change in real incomes, even if new products and important quality improvements contributed to our wellbeing. Indeed, the US government does not count the value created by Internet services like Google and Facebook as income at all, because these services are not purchased. No one knows how much such product innovations and improvements have added to our wellbeing. But if the gains have been worth just 1% a year, over the past 30 years that would cumulate to a gain of 35%. And combining that with the CBO estimate of a gain of about 50% would imply that the real income of the median household is up nearly 2.5% a year over the past 30 years.

If I am mathing this out right, real median incomes rising 2.5% a year for 30 years means real median incomes have more than doubled. If you invested $100,000 for 30 years at 2.5% interest, the investment would be worth $210,000 three decades hence. And here is more on how our productivity and inflation measures are having a hard time with America’s IT economy.

]]>http://www.aei.org/publication/middle-class-incomes-havent-been-flat-for-30-years-in-fact-heres-why-they-may-have-doubled/feed/5Think about this: The US ranks 46th in how easy it is to start a companyhttp://www.aei.org/publication/think-about-this-the-us-ranks-46th-in-terms-of-how-easy-it-is-to-start-a-company/ http://www.aei.org/publication/think-about-this-the-us-ranks-46th-in-terms-of-how-easy-it-is-to-start-a-company/#commentsFri, 31 Jul 2015 17:37:08 +0000http://www.aei.org/?post_type=publication&p=852407

Every nation needs a unifying idea. Americans love to see themselves as champions of free markets and entrepreneurial zeal — and have long been more welcoming to entrepreneurs than has most of the western world. But the 2008 financial crisis tarnished America’s self-image (with, for example, the eyesore of state support for mortgages). The entrepreneurial halo is starting to slip, too, since increasing quantities of red tape are making life harder for start-ups, relative both to the past and to the rest of the world. … The process of securing these licences is often so costly and cumbersome that one recent study estimated costs for consumers at $200bn a year. More importantly, licences deter many would-be workers — and entrepreneurs.

A separate World Bank report is even more sobering. Last year it ranked countries according to their levels of support for the corporate world. This placed America in seventh place in terms of overall ease of doing business. But the US was ranked 46th — yes, 46th — in terms of how easy it is to start a company. This is worse than Estonia, Malaysia, Georgia and even France.

One important reason for this dismal position is that in America entrepreneurs need, on average, to navigate six different legal and regulatory hurdles to start a company. In New Zealand and Canada, which top the league, there is just one procedure. The complexity faced by Americans means that it takes them on average about six days to create a start-up; in many other countries the process is much faster and cheaper.

Of course, this World Bank league does not tell the whole tale. The American national average conceals significant geographical variations because it is municipalities that set many of the business rules. Thus research by Thumbtack, a West Coast website that connects consumers with local businesses, and the pro-entrepreneurship Kauffman Foundation shows that it is much easier to start a company in Texas than, say, California. Moreover, red tape is only one factor that determines start-up activity; what also matters is whether there is access to capital and a culture of respect for entrepreneurs.

]]>http://www.aei.org/publication/think-about-this-the-us-ranks-46th-in-terms-of-how-easy-it-is-to-start-a-company/feed/0Lost Decade? The US is about to have its first 10-year period since World War II without at least one year of 3% growthhttp://www.aei.org/publication/lost-decade-the-us-is-about-to-have-its-first-10-year-period-since-world-war-ii-with-at-least-one-year-of-3-growth/ http://www.aei.org/publication/lost-decade-the-us-is-about-to-have-its-first-10-year-period-since-world-war-ii-with-at-least-one-year-of-3-growth/#commentsFri, 31 Jul 2015 16:37:21 +0000http://www.aei.org/?post_type=publication&p=852385

Two views of the anemic US economy. For starters, you have the Labor Department’s employment-cost index, a broad measure of workers’ wages and benefits. It rose just 0.2% in the second quarter from the first quarter. That marked the smallest quarterly gain since record keeping began in 1982. On a year-over-year basis, the ECI increased 2.0% in 2Q, “the softest gain in about a year,” notes JPMorgan. And the private sector was particularly weak, not rising at all. Gains could only found in government work.

Moreover, real GDP growth in the first half rose at a mere 1.5% annual pace. (Also, the economy’s annual growth rate over the past two years was downgraded to 2% from 2.3%.) The economy would have to experience a pretty powerful surge to hit 3% growth for the year, something it has not done since 2015. Yup, a Lost Decade — at least as measured by not hitting 3% growth, about the postwar average. Bloomberg: “The economy would have to grow at a 4.75-percent rate during the final two quarters of 2015 to reach 3 percent for the year. A recent Bloomberg survey of 70 economists found that the median forecast for the remainder of the year was for GDP of 3 percent.”

Just another sign that 2015 is not shaping up to be the Year of Acceleration, as many economist anctipated. Same-old, same-old stagnation. Bloomberg reporter Peter Gosselin offers three reasons: First, recessions driven by financial crisis and housing collapse produce weak recoveries. New home sales are still only at a third of 2005’s level. Second, the economy is less efficient as evidenced by lackluster productivity growth. “Labor Department figures show that productivity growth peaked in 2002, well before the economy slowed and contracted.” Third, there’s the decline in entrepreneurship, which may be affecting productivity growth. Census data show “that among U.S. firms, the share that are young — less than a year old and with at least one employee — has fallen from 11 percent in the early 1990s to 10 percent early in the last decade to 8 percent early in this decade. Meanwhile, the fraction of firms that are 16-years-old or more has gone from 23 percent to 29 percent to 35 percent.”

But, but, but … what if there is more this story, as I explore in my new The Week column:

Think about it: Month after month, the economy is generating about a quarter million net new jobs. The unemployment rate is close to 5 percent. Corporate profit margins are at record highs, with stock values not far behind. And Silicon Valley is on fire. A new TechCrunch analysis finds that the number of unicorns — technology startups valued at over $1 billion — has more than doubled since 2013. Europe would love to have a “stagnant” economy like America’s. …

It’s a puzzle for which Goldman Sachs has a simple answer: We are measuring productivity wrong, and therefore we are measuring GDP wrong. A metric devised for America’s 1930s “steel-and-wheat” economy, in the words of economic historian Joel Mokyr, doesn’t work so well for a rapidly growing digital economy. In a recent report, Goldman economist Jan Hatzius and Kris Dawsey note that prices of tech hardware — adjusted for quality improvements — have fallen a lot faster than those for software. This suggests software isn’t improving much. But Goldman thinks this gap is a “statistical mirage” reflecting the “amorphous” nature of software improvements. …

As the Goldman economists reckon, then, U.S. inflation is lower than we think due to sharply falling, “quality adjusted” IT hardware and software prices — and thus real economic growth and productivity are higher. GDP growth might actually be close to 3 percent right now, which would be more in sync with what’s happening in labor markets and the tech sector. Oh, and it also means real incomes are growing faster than we think, which is why the economists are “skeptical of confident pronouncements” that American living standards aren’t improving as fast as they used to. By the way, new analysis by the Peterson Institute suggests worker incomes have pretty much been keeping up with productivity gains. So perhaps more good news for the 99 percent.

Goldman could be wrong, of course. It is a debate I have been blogging about (see below). And either way, we hardly have policy that is optimal for innovation, productivity, and growth. To make sure we avoid the Great Stagnation, we need the Great Optimization.

]]>http://www.aei.org/publication/lost-decade-the-us-is-about-to-have-its-first-10-year-period-since-world-war-ii-with-at-least-one-year-of-3-growth/feed/0Iran deal aftermath: Wolfowitz on Fox Business Network’s ‘Cavuto Coast to Coast’http://www.aei.org/press/secret-iran-side-deals-wolfowitz-on-fox-business-networks-cavuto-coast-to-coast/ http://www.aei.org/press/secret-iran-side-deals-wolfowitz-on-fox-business-networks-cavuto-coast-to-coast/#commentsFri, 31 Jul 2015 16:15:08 +0000http://www.aei.org/?post_type=press&p=852416http://www.aei.org/press/secret-iran-side-deals-wolfowitz-on-fox-business-networks-cavuto-coast-to-coast/feed/0Hedge fund snake oil for Puerto Ricohttp://www.aei.org/publication/hedge-fund-snake-oil-for-puerto-rico/ http://www.aei.org/publication/hedge-fund-snake-oil-for-puerto-rico/#commentsFri, 31 Jul 2015 15:23:53 +0000http://www.aei.org/?post_type=publication&p=852380The prospects for an early resolution to Puerto Rico’s debt crisis do not appear to be good. For judging by this week’s report commissioned by hedge fund owners of Puerto Rican bonds, the hedge funds seem to be arguing that Puerto Rico does not have a government debt problem. Indeed, they appear to be arguing that all that Puerto Rico needs to do is to fully implement the budget austerity and structural reform measures suggested by the recent Krueger report (commissioned by the Puerto Rican government) and all would be well on the island.

The hedge fund report, commissioned from a group of former International Monetary Fund (IMF) economists and entitled with the misnomer “For Puerto Rico, There is a Better Way,” is seriously flawed. It bases its conclusions on its idiosyncratic interpretation of the Krueger report. It does so by asserting that if that report’s recommendations of severe budget austerity and structural reform were fully implemented, Puerto Rico’s government deficit problem would disappear and its government debt problem would be resolved.

Yet somehow the hedge fund report overlooks the fact that the Krueger report found that even if all of its recommendations would be strictly implemented, Puerto Rico’s government would still have a very large unfunded financing gap. Indeed, the Krueger report estimated that over the next 10 years, even if all of its recommendations were to be implemented to the letter, Puerto Rico’s financing gap would amount to around 30 percent of the government’s debt servicing obligations. That finding led the Krueger report to explicitly state that debt restructuring would have to be part of the solution to the island’s government debt problem.

]]>http://www.aei.org/publication/hedge-fund-snake-oil-for-puerto-rico/feed/0New York Times: The right minimum wage is $0.00 per hourhttp://www.aei.org/publication/new-york-times-the-right-minimum-wage-is-0-00-per-hour/ http://www.aei.org/publication/new-york-times-the-right-minimum-wage-is-0-00-per-hour/#commentsFri, 31 Jul 2015 14:47:59 +0000http://www.aei.org/?post_type=publication&p=852367...]]]>From the New York Times editorial “The Right Minimum Wage: $0.00“:

There’s a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage by a substantial amount would price working poor people out of the job market. A far better way to help them would be to subsidize their wages or – better yet – help them acquire the skills needed to earn more on their own.

An increase in the minimum wage would restore the purchasing power of bottom-tier wages. It would also permit a minimum-wage breadwinner to earn almost enough to keep a family of three above the official poverty line. There are catches, however. It would increase employers’ incentives to evade the law, expanding the underground economy. More important, it would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired.

If a higher minimum means fewer jobs, why does it remain on the agenda of some liberals? A higher minimum would undoubtedly raise the living standard of the majority of low-wage workers who could keep their jobs. That gain, it is argued, would justify the sacrifice of the minority who became unemployable. The argument isn’t convincing. Those at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs.

The idea of using a minimum wage to overcome poverty is old, honorable – and fundamentally flawed. It’s time to put this hoary debate behind us, and find a better way to improve the lives of people who work very hard for very little.

MP: In case you’re in shock hearing the NY Times editorialize against raising the minimum wage, check the publication date of the editorial. It was back in an era when even the NY Times editorial board had a grasp of basic economics.

]]>http://www.aei.org/publication/new-york-times-the-right-minimum-wage-is-0-00-per-hour/feed/10Quote of the day from ‘The Conservative Heart’http://www.aei.org/publication/quote-of-the-day-from-the-conservative-heart-9/ http://www.aei.org/publication/quote-of-the-day-from-the-conservative-heart-9/#commentsFri, 31 Jul 2015 14:10:07 +0000http://www.aei.org/?post_type=publication&p=852341As he concludes his book, “The Conservative Heart,” AEI President Arthur C. Brooks calls on his fellow conservatives to show America their true colors and — by winning hearts, elections, and debates — to promote free enterprise in our nation and the world:

The world needs us to stop losing. There are too many people in America who are being left behind. There are too many people overseas who don’t enjoy the benefits of democratic capitalism and free enterprise. There are too many people everywhere who have been denied the happiness that comes with earned success. Those people need us. If we want the chance to help them, we’ve got to improve the way we make our case to the American people.

We have to share what is written on the conservative heart.

Natalie Runkle is an AEIdeas intern.

]]>http://www.aei.org/publication/quote-of-the-day-from-the-conservative-heart-9/feed/1America’s economy is doing much better than you thinkhttp://www.aei.org/publication/americas-economy-is-doing-much-better-than-you-think/ http://www.aei.org/publication/americas-economy-is-doing-much-better-than-you-think/#commentsFri, 31 Jul 2015 10:00:21 +0000http://www.aei.org/?post_type=publication&p=852379You could be forgiven for thinking that America’s disappointing economic recovery is even worse than we thought.

After all, GDP growth, adjusted for inflation, increased at an annual average of just 2 percent over the past two years, according to revised government figures released Thursday. That’s down from the prior 2.3 percent estimate, which itself was pretty lousy. And so far this year, growth has been even weaker, just a 1.5 percent pace.

By comparison, average GDP growth since World War II has been just over 3 percent, and 4 percent for the average post-1960 recovery. No wonder some economists think the Great Recession has given way to the Great Stagnation.

Unless it hasn’t. What if things are actually a lot better than we think — or at least better than GDP figures suggest?

Think about it: Month after month, the economy is generating about a quarter million net new jobs. The unemployment rate is close to 5 percent. Corporate profit margins are at record highs, with stock values not far behind. And Silicon Valley is on fire. A new TechCrunch analysis finds that the number of unicorns — technology startups valued at over $1 billion — has more than doubled since 2013. Europe would love to have a “stagnant” economy like America’s.

So why then do the all-important GDP numbers — the broadest measures of economic activity — show a perpetual funk? As The Week’s Ryan Cooper explained earlier this week, measured U.S. productivity growth has been terrible during the recovery. And if output per worker isn’t rising much, if at all, GDP growth is bound to be weak, too. Even worse, productivity growth has been subpar since 2004, giving little sign that the supposed IT revolution — apps, big data, digital content, social networks — is having much economic impact.

It’s a puzzle for which Goldman Sachs has a simple answer: We are measuring productivity wrong, and therefore we are measuring GDP wrong. A metric devised for America’s 1930s “steel-and-wheat” economy, in the words of economic historian Joel Mokyr, doesn’t work so well for a rapidly growing digital economy. In a recent report, Goldman economist Jan Hatzius and Kris Dawsey note that prices of tech hardware — adjusted for quality improvements — have fallen a lot faster than those for software. This suggests software isn’t improving much.

But Goldman thinks this gap is a “statistical mirage” reflecting the “amorphous” nature of software improvements. Hatzius and Dawsey ask: “How much better are the inventory management systems that retail companies contract out or develop for their own account compared with those of 20 years ago? How much better is Grand Theft Auto V than Grand Theft Auto IV? And how much more value do we now derive from our internet connection compared with a decade ago?”

As the Goldman economists reckon, then, U.S. inflation is lower than we think due to sharply falling, “quality adjusted” IT hardware and software prices — and thus real economic growth and productivity are higher. GDP growth might actually be close to 3 percent right now, which would be more in sync with what’s happening in labor markets and the tech sector. Oh, and it also means real incomes are growing faster than we think, which is why the economists are “skeptical of confident pronouncements” that American living standards aren’t improving as fast as they used to. By the way, new analysis by the Peterson Institute suggests worker incomes have pretty much been keeping up with productivity gains. So perhaps more good news for the 99 percent.

Now, even if Goldman’s analysis is dead on, it doesn’t mean policymakers should sit on their hands. For the U.S. economy to grow as fast in the future as it did in the past, it will require even faster productivity growth to offset slowing population growth. That means deep reform of our tax, regulatory, and education systems. It means more public investment in infrastructure and science. And a lot more of those unicorns.